Wednesday, 1 June 2011

some basic arithmetic for gauging austerity's impact...

Brad DeLong has a beautifully simple back-of-an-envelope calculation on what the deficit implications of austerity are. His figures are for the US, and they are ugly... austerity means higher deficits in the future. Exercise for today: plug a number (any number, really) for Greece, and put them through the same formula. You get the opposite result, big-time. I dare anyone to suggest a multiplier so high that you can undo the effect of interest rates in this case. So, do the German deficit-hawks have a point? Discuss, in no more than 1,500 words!

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